The Five Hallmarks of Sustainable Market Leaders
We all have people we admire. We examine their backgrounds or actions in the hope of replicating their success. Companies study objects of admiration too. They dedicate financial and human resources to studying other successful organizations.
These efforts pay dividends when companies respond to megatrends, such as sustainability. Over the past 18 months I studied how every 2010 Global Fortune 500 company is addressing sustainability. First I reviewed all publicly available information. Then I organized these companies into quartiles. To create these quartiles, I assigned one point to each company every time it appeared on the most recent edition of each of eight prominent sustainability indexes. I termed the companies in the top quartile of companies on the basis of points “Sustainable Market Leaders.” Finally I conducted more than one hundred interviews with Sustainable Market Leaders’ executives.
Five hallmark tactics of Sustainable Market Leaders emerged. These tactics are commonly applied by companies regardless of industry or geographic location. The five hallmark tactics of Sustainable Market Leaders are:
- They take a fresh approach to sustainability. Many companies view sustainability as a series of risks to be managed. At best, this approach increases the likelihood of ‘status quo’ performance. More and more Sustainable Market Leaders, on the other hand, view sustainability as opportunity.
Consider Australia and New Zealand Banking Group (ANZ). ANZ recently sought to grow by solving a social challenge in Cambodia. Their research showed that only 1 out of every 28 Cambodians had a bank account. The younger generation was moving from rural parts of the country to Phnom Penh for higher wages. In lieu of transferring money between bank accounts, Cambodians relied on taxi couriers to physically transfer money to relatives outside the city. ANZ viewed solving this social problem as an opportunity. Their mobile money solution, Wing, has provided a return for ANZ, new employment opportunities for Cambodians, and a less expensive, more reliable payment solution Cambodians as well.
- They change direction to pursue opportunity. Imagine your company’s stock price grew 200 percent more than a major stock index over a six-year period. Would you change your company’s direction? Johnson Controls did.
Between 2001 and 2006 Johnson Controls’ stock price grew by 200 percent, compared to the DJIA’s eight percent performance growth. Yet the company introduced a new CEO in late 2006. Soon after Stephen Roell’s installation as CEO, the company embarked on an ambitious overhaul of its vision, mission, and strategy. A critical assessment of events to come suggested a commitment to sustainability would be prudent. Johnson Controls crafted a new vision—create a more comfortable, safe and sustainable world—as their path for continued growth. To carry out its vision, Johnson Controls added sustainability to its set of core values and set about cascading that focus throughout its business units, departments, and geographic locations.
- They get their hands dirty. Sustainable Market Leaders accept that embracing sustainability is prickly and hard. As a result, these companies employ small, smart changes to what they already do to create value.
Consider the disguised story of a consumer goods company that launched a new product package. The package was brilliant; wrapped with a synthetic material, the package literally sparkled. Shortly after launch the company discovered that the new material made the package unrecyclable. The company pulled the product from retailers’ shelves, redesigned the package, and eventually re-launched the product. Upon review this company installed a ‘stage gate’ that confirmed every idea would be beneficial to the company’s sustainability goals was needed before an idea receives funding.
- They seek collaboration. Stakeholders have become adamant about being involved in the way companies create value.
Sustainable Market Leaders are inviting stakeholders to participate in decision making meetings with senior executives. For example, in 2010 Sodexo, the global food services company, brought representatives from the World Wildlife Fund to Paris to participate in the company’s global steering committee meeting for sustainability. This was the first time that the company had a non-Sodexo executive at the table involved in decision making.
- They put their money where their mouth is. Often sustainability initiatives are sparked by grass roots efforts. But these efforts just as often run out of steam. The culprit? Companies tend not to compensate employees for time they spend on sustainability grass roots efforts.
Sustainable Market Leaders are beginning to compensate employees for helping achieve sustainability goals. Perhaps the most well known example is National Grid. The UK based utility with operations in the US as well, has set a goal to reduce carbon emissions by 45 percent by 2020. To achieve this goal the company has installed annual carbon budgets for each of its business units. Executives are expected to reduce their group’s carbon budget one to one-and-one-half percent each year until 2050. A portion of the compensation for each business unit’s lead, and the company’s CEO, is tied to the unit’s (and the company’s) ability to manage their annual carbon emissions below their budgeted amount for the year.
How many of these five tactics is your company employing? Is your company on the patch to become a Sustainable Market Leader?
Eric Lowitt is an independent consultant who helps companies grow, innovate, and become more agile and competitive by embracing sustainability. His first book, The Future of Value, releases through Jossey-Bass/Wiley in September, 2011. Eric can be reached at firstname.lastname@example.org
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